This note outlines a framework for assessing the extent of fiscal risks inherent in the operations of public bodies (PBs), highlighting eight applications in Jamaica.
... See More + Scenario analysis and stress testing are two components used to determine the combined effects of company- and sector-specific risk factors and macroeconomic shocks on selected PBs. The frameworks results can help identify the contributions of PBs, as well as determine the PBs' required budget allocations. The framework also provides an opportunity to determine the potential impact of fiscal risks on a country's debt dynamics.
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Since the mid-1990s, Brazil has struggled, with limited success, to reform its intergovernmental financing arrangements. Every four years, the electoral cycle brings promises of much needed reforms.
... See More + Recently, Brazil had an unusual window of opportunity to promote such reforms, brought about not by another electoral cycle, but by Supreme Court rulings and changes to its oil exploration regime. This note takes stock of the realized reforms and simulates their impact for state governments in Brazil.
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Over the last few years, Brazil's growth has significantly decelerated. Accompanying this slowdown, a change in commentary on Brazil's economic future has emerged, and is reflected in a recent ratings downgrade of Brazilian sovereign paper and an overall much-bleaker growth outlook both for the near and medium term.
... See More + This note examines three contributing factors to this change in sentiment: macroeconomic management, the external environment, and microeconomic fundamentals. Among these, this note argues that the relative lack of progress on the microeconomic reform agenda has been far more detrimental to the growth outlook than either the credibility cost of recent macroeconomic management or the negative influence of a less supportive external environment. Against this backdrop, the recent ratings downgrade is not inherently negative: while Brazil is not about to slide down a slippery slope of macroeconomic mismanagement or on the verge of an externally powered economic meltdown, the downgrade can serve as a call to action for government to enact the necessary structural reforms to energize and sustain productivity growth.
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While South Asia's average gross domestic product (GDP) growth in the past decade was only slightly lower than in East Asia and the Pacific, the region significantly lags behind in terms of infrastructure access.
... See More + In some cases, South Asia's access levels are more similar to sub-Saharan Africa, although considerable heterogeneity exists across the South Asia region (SAR) some provinces, infrastructure types, and countries have much higher access levels than others. If SAR can't close its United States (U.S.) $1.7 trillion to U.S. $2.5 trillion infrastructure gap, its growth performance is likely to stall. This note examines the type and magnitude of the infrastructure gap, and also looks at inequality of access to infrastructure across physical, poverty, and income spaces. Keeping in mind five key principles, there are several options for policy makers to consider for closing the infrastructure gap while also improving the equality of access.
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Some analysts believe that the commodity price boom of the new millennium has played itself out. However, natural resource based commodity prices (with the exception of shale gas and its downward pressure on United States (U.S.) natural gas prices) have remained high by historical records over the last few years, despite the feeble global economic recovery.
... See More + The commodity price spike that started at the end of the 1990s has not been significantly affected by the global downturn, with average prices similar to 2008 levels. Indeed, commodity prices have occasionally shown signs of reviving more quickly than the global economic output level. So the question is: have one entered a phase of descending commodity prices? This note argues that it may be too soon to say that the commodity super-cycle phenomenon is a thing of the past.
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Successful entry into export markets and the subsequent survival of export flows are crucial if a country is to grow and diversify its export base.
... See More + The accumulated experience of firms that export a particular product or serve a specific destination can provide valuable information. When more of this export-relevant information is available to exporters, export flows have better chances of survival in new markets. However, many developing countries face two problems when it comes to acquiring this information. First, firms do not have incentives to share information. Information constitutes part of competitive advantage, and sharing it may weaken competitiveness. Second, type of information is often absent, lacking, or underutilized. There is no clear mapping of available resources or activities that are actually profitable. Discovery is costly, and chances of export survival are lower. This note focuses on the role of information in the survival of Georgias exports, unveiling a robust association between product-specific and destination-specific information and export survival. These results suggest that there are gains to be made through fostering greater inter-firm dialogue - especially dialogue that generates market- and product specific information to increase the changes of exports survival in Georgia.
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Emerging market economies (EMEs) are making important strides in developing long-term finance capital market vehicles to support investment in strategic areas such as infrastructure.
... See More + However, since last year, EMEs have suffered from big shifts in terms of market sentiment. While EMEs prospects were clearly overhyped in the wake of the crisis, the bleak forecasts that dominated headlines in the second half of last year were similarly exaggerated. There are still a number of factors indicating that EMEs role in the global economy will continue to grow, just not as rapidly or dramatically as previously thought.
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One of the most extraordinary events in Brazil in the past 30 years has been the countrys agricultural revolution. In the 1970s, food scarcity was a concrete risk in a country experiencing rapid urbanization and middle class expansion.
... See More + Food scarcity concerns reemerged during the following decade when short-lived spikes in real wages temporarily increased households demand for those goods. One of the governments initiatives to address Brazils stagnant agriculture sector and food scarcity was Empresa Brasileira de Pesquisa Agropecuaria (Embrapa). Embrapa has succeeded in adapting, creating, and transferring technologies to Brazilian farmers for the past 30 years, helping transform Brazil into one of the worlds largest food exporters.
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Trinidad and Tobago (T and T) is an example of successful diversification within the oil and gas sector and the country is now a global player in the energy industry.
... See More + Diversifying its asset base so that the non-resource sector can continue to grow and generate jobs once the country's oil reserves are depleted is also an important priority for Trinidadians. With reserves of oil and gas in T and T expected to be exhausted by 2025-30, the government is focusing more and more on options for diversification. Although many countries have grown and improved their development outcomes while remaining highly dependent on natural resource rents, the obvious concern is what will be the sources of growth for the country when oil runs out? In this context, this note identifies the binding constraints and potential drivers to further economic diversification in T and T.
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Global value chains (GVCs) are playing an increasingly important role in business strategies, which has profoundly changed international trade and development paradigms.
... See More + GVCs now represent a new path for development by helping developing countries accelerate industrialization and the servicification of the economy. From a firm perspective, production in the context of GVCs highlights the importance of being able to seamlessly connect factories across borders, as well as protect assets such as intellectual property. From the policy maker perspective, the focus is on shifting and improving access to resources while also advancing development goals, and also on the question of whether entry into GVCs delivers labor-market-enhancing outcomes for workers at home, as well as social upgrading. GVCs can lead to development, but, at the country level, constraints such as the supply of various types of labor and skills and inadequate absorptive capacity remain. GVCs can create new opportunities on the labor demand side, but supply and demand cannot meet if the supply is missing. This potential gap illustrates the importance of embedding national GVC policies into a broader portfolio of policies aimed at upgrading skills, physical and regulatory infrastructure, and enhancing social cohesion.
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The world's aging population is expected to shape the future of economies across the globe. Without behavioral adaptation by current and future generations, this demographic transformation is likely to slow down economic growth.
... See More + However, aging will also induce behavioral adjustments in savings and labor force participation. Will these adjustments be large enough to reverse the negative effects of demographic change? The answer depends on a number of conditions. This note suggests that determining whether aging is driven by an increase in longevity or by a decrease in fertility is important for understanding the size and direction of these demographic effects. Moreover, the type of unfunded social security system that exists in the economy could also influence the net effect of aging.
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In the aftermath of the recent global financial crisis, advanced economies have continued to experience sluggish growth. Is this slow post crisis growth the result of a policy response that was overly reliant on monetary policy, which ran into the zero interest rate lower bound before growth, was restored?
... See More + Looking deeper, is secular stagnation, which is related to the zero lower bound and was recently brought to the fore by Larry Summers, another potential cause for advanced economies' failure to return to pre-crisis growth levels? This note seeks to answer these questions as well as identify what alternative policies may be pursued by advanced economies to escape secular stagnation, should stagnation proponents be proven correct. After a brief review of secular stagnation, Summers' hypothesis is tested through a review of academic literature and opinion pieces. However, the secular stagnation theory is not without its critics; moreover, there is a debate between "Keynesian versus Schumpeterian" economists, which can help to shed light on the medium-term post crisis outlook.
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This economic premise examines the intersection of four important development themes: urbanization, agglomeration, gender, and informality.
... See More + Although urbanization has continued at a rapid pace, formalization appears to have stalled. Women comprise an increasing share of the informal sector in many countries, but are increasingly underrepresented in the formal sector relative to their presence in the informal sector. Firm-level evidence suggests informal enterprise creation, particularly by women, has important connections to urbanization. Female-specific market access, especially to inputs, is a key factor for women-owned enterprise creation in the informal sector. Given the persistence of the informal sector, and given the importance of women-owned enterprise creation for jobs and gender equity, more policy measures focused on enhancing access to inputs for female-owned enterprises are important to maximize women's contributions to India's economic growth
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The combination of an increasing trade imbalance, concerns about deindustrialization after several years of booming commodity prices, and rising imports of intermediate inputs and capital goods over the last decade has triggered new restrictive trade measures that have been gaining ground in Indonesia.
... See More + The Indonesian government is concerned about the impacts that an increased reliance on imported inputs may have on domestic jobs and value added. In addition to use of imported intermediates by firms involved in global production networks, firms use these intermediates for various reasons, including value, variety, and quality. Drawing on the findings of recent research, this note examines the characteristics of firms that rely on imported intermediates, and the role of these foreign intermediates on product quality upgrading and product diversification in Indonesia during 1998-2009. After a careful examination of sector, and firm-level data from Indonesian manufacturing, analysis uncovered three important findings: first, that users of imported inputs in Indonesia are exceptional performers. These firms grow faster in terms of output, value added and employment; they are more productive; and they pay higher wages. Second, both the use and the availability of imported inputs have contributed to improved product quality in Indonesian manufacturing. Third, firms' product diversification processes have been boosted by lower tariffs on inputs and by increased usage of imported versions. In light of these results, this note argues that facilitating imports of intermediate inputs is crucial to the performance of the most dynamic firms and that these intermediate imports diversify the Indonesian manufacturing sector while helping firms climb up the value chain.
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Real growth in global trade has decelerated significantly since its sharp recovery in 2010. Year-on-year growth in global real trade1 decelerated from 13.3 percent at the end of the first quarter of 2010, to 9.9, 3.1, and 0.5 percent at the end of the first quarters of 2011, 2012, and 2013, respectively, while picking back up to 3.9 percent in the year leading up to the fourth quarter of 2013.
... See More + This aggregate deceleration in global trade includes absolute declines in real trade for many product categories and regions. In the wake of the great trade collapse of 2008-9, understanding of the behavior of trade in slowdowns has improved. Among the many explanations offered for the great trade collapse, including explanations related to uncertainty, trade financing, and new protectionist measures by governments, there has been a significant focus on whether the emergence of global value chains (GVCs) in international trade, and their behavior, are a contributing factor in trade slowdowns.
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If there was one bold and timely policy to transform Indonesia, this is it. In 2012, spending on energy subsidies claimed more than one-fifth of the central government's budget, that is, more than three times the allocation for infrastructure such as roads, water, electricity and irrigation networks, and three times the government wide spending on health.
... See More + In addition to crowding out high-priority spending, subsidies disproportionately benefit households at the top of the income distribution and throw sand on Indonesia's remarkable record of prudent macroeconomic management. Not to mention how subsidies create disincentives for saving energy, developing alternative energy sources, and reducing carbon dioxide emissions. Given their adverse short, and long-term economic consequences, reducing them, with the appropriate safeguards to protect the poor, is a fair, prudent, and transformative policy.
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After experiencing an initial period of rapid growth, many developing countries have fallen into the middle-income trap, stuck between low-wage, low-technology markets and high-income, innovation-based developed economies.
... See More + As previous literature has demonstrated (Agenor and Canuto 2012), public policies aimed at improving access to advanced information and telecommunications (ITC) infrastructure, protecting intellectual property rights, and reforming labor markets to reduce rigidities can help developing countries avoid such low-growth equilibrium. As a complement to these policies, which create an enabling environment for learning and innovation, this note draws on more recent work (Agenor and Canuto 2014) that emphasizes the role of access to finance in supporting the innovative activities that in turn can help countries climb the ladder to high-income status. In particular, this note argues that inadequate access to finance has an adverse effect on innovation, directly, through the financing of fewer research and development (RD) projects, and also indirectly, as fewer individuals may choose to invest in the skills necessary to work in RD fields. These dual effects highlight the need for public policies aimed at alleviating credit market imperfections to promote the production of ideas and increase the incentives for workers to invest in higher skills. An empirical comparison of countries in East Asia that were able to escape the middle-income trap with less successful counterparts in Latin America provides a poignant example of how access to finance influences innovation outputs and long-term economic growth.
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The cost of the subsidy system in Morocco peaked at 6.6 percent of gross domestic product (GDP) in 2012, an amount larger than the country's total investment budget for that year.
... See More + Direct subsidies to households in 2013 (October 2013 prices) are estimated at DH34.4 billion (US$4.1 billion, or 3.9 percent of GDP). Replacing direct subsidies with a universal per capita annual cash transfer of DH749 (US$90) would leave the poverty rate unchanged, while reducing direct subsidies to DH24.6 billion (2.8 percent of GDP). It is possible to reduce direct subsidies further by targeting only a part of the population, down to DH2.4 billion (0.3 percent of GDP), if only the poor were targeted. However, to implement selective targeting, the government of Morocco will need to substantially strengthen its social protection system.
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The extent to which developing countries benefit from foreign direct investment (FDI) depends on whether they are able to realize the productivity-enhancing benefits of knowledge and technology spillovers from foreign investors.
... See More + To date, the experiences in Sub-Saharan Africa have been largely disappointing. This is perhaps not surprising, bearing in mind the complex interplay of factors needed for spillovers to emerge. On top of the challenges of supply side capacity and the host country's policy environment, the willingness and capacity of foreign investors to support spillovers vary hugely across sectors and firms, and are shaped by the dynamics of the global value chains (GVCs) in which they operate. This note summarizes the main findings from the new World Bank book Making Foreign Direct Investment Work for Sub-Saharan Africa and discusses the implications for policy makers hoping to harness the potential of FDI for better development outcomes.
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Policy makers in both developed and developing countries want to accelerate spatial development, make cities more competitive, attract new entrepreneurs, boost economic growth, and promote job creation.
... See More + These are commendable goals given that city populations in developing countries are expected to double from 2 billion to 4 billion people between 2000 and 2030. So what makes some cities more competitive than others? This note examines city competitiveness in India through the lens of spatial location choices of new and young entrepreneurs using plant-level data from the manufacturing and services sectors, including formal and informal operations. Findings show that the two most consistent factors that predict overall entrepreneurship for a district are its population's level of education and the quality of local physical infrastructure; these patterns are true for manufacturing and services. Agglomeration economies are much stronger in India than in the United States, but there is much greater variation in spatial outcomes in India than in the United States. Micro evidence for India also suggests that while strict labor regulations discourage formal sector entry, better household banking environments encourage entry into the informal sectors. Informal sectors conform much more closely to the overall contours of India's economic geography than formal sectors. Policy makers looking to promote competitiveness in their local areas have several policy levers to exploit.
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